SCS – A good start for strong FY21F – Earnings Update

• SCS reported 1Q20 net profit of VND137bn (+13.0% yoy), in line at 24.2% of our full-year forecast.
• We expect SCS to maintain the sustainable recovery with 17.2% yoy and 22.0% yoy of FY21F revenue and net profit growth, respectively.
• Reiterate our Add call with an unchanged TP of VND161,400

Positive 1Q21 business results

• In 1Q21, net revenue increasing 6.8% yoy to VND196.1bn thanks to the recovery of total cargo volume (+3.5% yoy) and the increasing in ASP (+3.5% yoy) due to higher proportion of cold storage cargo with high ASP.
• Gross profit margin narrowed 0.3% pts yoy to 79.3% in 1Q21 as outsource expenses jumped 11.4% yoy. However, thanks to cost-cutting efforts, SG&A expenses decreased 8.0% yoy, which help net profit rise 13.0% yoy. This is a promising result giving the context that international flights in Vietnam were only banned for only half a month in 1Q20 but for the whole quarter in 1Q21.
• On a qoq basis, total air cargo volume in 1Q21 decreased 8.2% qoq as 1st quarter is the low season of air cargo transportation, but net revenue only slid 0.7% qoq thanks to higher ASP (+8.5% qoq). 1Q21 net profit increased 6.9% qoq showing the effect of SCS’s cost-cutting efforts.
• Overall, 1Q21 revenue/net profit were largely in-line at 24.2%/24.2% of our full-year forecast.

Maintaining the recovery momentum in FY21F

• Following the recovery, we believe SCS’s upcoming quarter results will grow strongly on the low bases of FY20’s remaining quarters. With the expectation that international skies can be reopened since the end of 3Q21F, we keep our previous forecasts for FY21F in which total cargo volume would increase 10.3% yoy with domestic cargo volume rising 6.9% yoy and international cargo volume rising 11.5% yoy.
• We estimate SCS’s FY21F revenue/NP would grow 17.2% yoy/22.0% yoy.

Reiterate ADD with TP of VND161,400

• Our DCF-based TP remains at VND161,400 (WACC: 12.1%).
• Potential re-rating catalysts include announcement of capacity expansion plans and M&A plans.
• Downside risk to our forecast includes uncertainties arising from global pandemic or crisis hindering international traffic.

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